Trusts and Estate Planning Strategies

Estate Planning Strategies For Virginia Beach, Williamsburg & McLean

How to plan for Irrevocable Trusts or Asset Protection Trusts

In most instances, when a person is speaking about a trust they are usually referring to a "Revocable Living Trust." As discussed on the Estate Planning Page, revocable trusts are typically the best way to allow someone to manage your assets if you become incapacitated. Moreover, the revocable trust avoids the associated costs, hassles and public record process that basic wills, conservatorships, and guardianships often incur.

However, revocable living trusts provide no asset protection against lawsuits, creditor claims and Medicaid spend-downs. The reason that these types of trusts do not protect assets is because the creator (i.e. Grantor) of the trust can change, alter, and revoke the trust whenever he or she wants. In addition, the Grantor maintains all control over trust-held assets and income. In sum, because the Grantor has full control, they own it, and, if they own it, then it is part of their estate and subject to creditors and the like.

The Difference of Irrevocable Trusts

Irrevocable Trusts are different. By its namesake, the term irrevocable means that there is some aspect of the trust that the Grantor cannot change. Perhaps it is a limitation on accessing the income or principal of the trust by the Grantor directly whenever they desire.

Irrevocable trusts have become much more flexible and user friendly over the past few years based upon their prevalent practical uses and changes to the law. These types of trusts come in a wide variety of flavors these days so it is important to seek legal counsel to determine which type of irrevocable trust would be the perfect fit for protecting and preserving your assets from estate taxes, lawsuits and the catastrophic expenses of long-term nursing home care.

What are Dynasty Trusts

A Dynasty Trust is a trust which continues for approximately 100 years or longer and provides payments to future generations without any additional estate or generation-skipping transfer taxes.

The Dynasty Trust strategy is different from the standard estate plan whereby the husband and wife usually leave all of their assets outright to their children equally upon their passing.

A Dynasty Trust continues for the children's lifetimes with the children receiving income or principal from the trust each year. As each child dies, the trust then continues for the deceased child's surviving children with income or principal available for the grandchildren during their respective lifetimes. Depending on a number of factors, the trust may continue for great grandchildren and even longer if desired.

A Dynasty Trust ensures that your assets will stay in your generational line after you pass away. Although the beneficiary may eventually have investment control over the trust, he or she will not legally own the assets which means that the trust will not be subjected to claims of the beneficiary's creditors, not subject to division upon a beneficiary's divorce and not subject to a child leaving the assets to a second or third spouse outside your blood line.

Virginia's Special Needs Trusts

A Supplemental Needs Trust (sometimes called a Special Needs or Disability Trust) is a specialized legal document designed to benefit an individual who has a disability. A Supplemental Needs Trust is most often a “stand alone” document, but it can form part of a Last Will and Testament or Living Trust after the parent of a special needs trust child passes away. Supplemental Needs Trusts have been in use for many years and were given an “official” legal status by the United States Congress in 1993.

A Supplemental Needs Trust enables a person under a physical or mental disability, or an individual with a chronic or acquired illness, to have, held in Trust for his or her benefit, an unlimited amount of assets. In a properly-drafted Supplemental Needs Trust, those assets are not considered countable assets for purposes of qualification for certain governmental benefits.

Governmental benefits which Supplemental Needs Trusts are designed to preserve may include Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, subsidized housing, and other benefits based upon need. For purposes of a Supplemental Needs Trust, an individual is typically considered impoverished if his or her personal assets are less than $2,000.00.

A Supplemental Needs Trust provides for supplemental and extra care over and above that which the government provides. The law firm of J.S. Burton can assist you with your unique special needs trust issue.

Irrevocable Life Insurance Trusts

An Irrevocable Life Insurance Trust (ILIT) can effectively eliminate the death proceeds from your life insurance policy (along with any accumulated cash value) from being included in the calculation of estate taxes due at your death. An ILIT can provide tax free liquidity to your estate to pay debts and expenses but also can provide tax free wealth to your beneficiaries.

Private Foundations

Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations. Foundations can be established during your lifetime or after your death through your estate planning documents. The private foundation can have personal income and estate tax savings benefits. In addition, this unique structure can also be designed to allow family members and future children to work for the foundation which allows you to pass on the spirit of philanthropy from one generation to the next.

Strategy of Deferring Capital Gains Penalties Through Trust Planning

Deferring Capital Gains through trust planning can provide a very powerful alternative to the typical 1031 exchange or real estate installment sale.

This powerful technique provides owners of highly appreciated assets such as residential or commercial real estate the following benefits:

  • Capital Gains Tax Deferment
  • Lifetime Income Stream
  • Investment Flexibility
  • Disciplined Retirement Savings
  • Continued Family Control
  • Tax Free Estate/Inheritance Transfer to one's Heirs

Contact the attorneys of J.S. Burton, P.L.C. at (888) 885-9001 for a consultation today.

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    • What estate planning documents should I have?
      A comprehensive estate plan should include the following documents, prepared by an attorney based on in-depth counseling which takes into account your particular family and financial situation:

      A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You (and your spouse) are the Trustee(s) and beneficiaries of your trust during your lifetime. You also designate successor Trustees to carry out your instructions in case of death or incapacity. Unlike a will, a trust usually becomes effective immediately after incapacity or death. Your Living Trust is "revocable" which allows you to make changes and even to terminate it. One of the great benefits of a properly funded Living Trust is the fact that it will avoid or minimize the expense, delays, and publicity associated with probate.

      If you have a Living Trust-based estate plan, you also need a pour-over will. For those with minor children, the nomination of a guardian must be set forth in a will. The other major function of a pour-over will is that it allows the executor to transfer any assets owned by the decedent into the decedent's trust so that they are distributed according to its terms.

      A Will, also referred to as a Last Will and Testament, is primarily designed to transfer your assets according to your wishes. A Will also typically names someone to be your Executor, who is the person you designate to carry out your instructions. If you have minor children, you should also name a Guardian as well as alternate Guardians in case your first choice is unable or unwilling to serve. A Will only becomes effective upon your death, and after it is admitted by a probate court.

      A Durable Power of Attorney for Property allows your agent to carry on your financial affairs in the event that you become disabled. Unless you have a properly drafted power of attorney, it may be necessary to apply to a court to have a guardian or conservator appointed to make decisions for you during a period of incapacitation. This guardianship process is time-consuming, expensive, emotionally draining and often costs thousands of dollars.

      There are generally two types of durable powers of attorney: a present durable power of attorney in which the power is immediately transferred to your agent (also known as your attorney in fact); and a springing or future durable power of attorney that only comes into effect upon your subsequent disability as determined by your doctor. Anyone can be designated, most commonly your spouse or domestic partner, a trusted family member, or friend. Appointing an agent assures that your wishes are carried out exactly as you want them, allows you to decide who will make decisions for you, and is effective immediately upon subsequent disability.

      The law allows you to appoint someone you trust to decide about medical treatment options if you lose the ability to decide for yourself. You can do this by using a Durable Power of Attorney for Health Care or Health Care Proxy where you designate the person or persons to make such decisions on your behalf. You can allow your health care agent to decide about all health care or only about certain treatments. You may also give your agent instructions that he or she has to follow. Your agent can then ensure that health care professionals follow your wishes. Hospitals, doctors and other health care providers must follow your agent's decisions as if they were your own.

      A Living Will informs others of your preferred medical treatment should you become permanently unconscious, terminally ill, or otherwise unable to make or communicate decisions regarding treatment. In conjunction with other estate planning tools, it can bring peace of mind and security while avoiding unnecessary expense and delay in the event of future incapacity.

      Some medical providers have refused to release information, even to spouses and adult children authorized by durable medical powers of attorney, on the grounds that the 1996 Health Insurance Portability and Accountability Act, or HIPAA, prohibits such releases. In addition to the above documents, you should also sign a HIPAA authorization form that allows the release of medical information to your agents, your successor trustees, your family and other people whom you designate.
    • How do I name a guardian for my children?
      If you have children under the age of eighteen, you should designate a person or persons to be appointed guardian(s) over their person and property. Of course, if a surviving parent lives with the minor children (and has custody over them), he or she automatically continues to remain their sole guardian. This is true despite the fact that others may be named as the guardian in your estate planning documents. You should name at least one alternate guardian in case the primary guardian cannot serve or is not appointed by the court.
    • What does my estate include?

      Your estate is simply everything that you own, anywhere in the world, including:

      • Your home or any other real estate that you own
      • Your business
      • Your share of any joint accounts
      • The full value of your retirement accounts
      • Any life insurance policies that you own
      • Any property owned by a trust, over which you have a significant control
    • Why is it important to establish an estate plan?

      Sadly, many individuals don’t engage in formal estate planning because they don’t think that they have “a lot of assets” or mistakenly believe that their assets will be automatically shared among their children upon their passing. If you don’t make proper legal arrangements for the management of your assets and affairs after your passing, the state’s intestacy laws will take over upon your death. This often results in the wrong people getting your assets as well as higher estate taxes.

      If you pass away without establishing an estate plan, your estate would undergo probate, a public, court-supervised proceeding. Probate can be expensive and tie up the assets of the deceased for a prolonged period before beneficiaries can receive them. Even worse, your failure to outline your intentions through proper estate planning can tear apart your family as each person maneuvers to be appointed with the authority to manage your affairs. Further, it is not unusual for bitter family feuds to ensue over modest sums of money or a family heirloom.